Examining The Growth Of Hispanic Business Owners

An estimated 55 million Hispanics live in the U.S., approximately 17% of the country's population, according to the Census Bureau. Further, there are more than four million Hispanic-owned businesses throughout the U.S., and their revenues have climbed to more than $660 billion, according to the U.S. Hispanic Chamber of Commerce. In fact, Hispanic entrepreneurs have been starting businesses at a pace 15 times the national average over the last decade.

The U.S. Hispanic Chamber of Commerce's annual Convention and Business Expo. (AP Photo/Alan Diaz)

The Census Bureau's Pacific region (California, Oregon, Washington and Alaska) represents more than one-quarter of the nation's Hispanic-owned businesses (1,057,301 companies). The South Atlantic region, which stretches from Maryland down to Florida, accounts for about 964,000 Hispanic-owned companies, while the West South Central region (Texas, Oklahoma, Arkansas, Louisiana) has an estimated 912,000.

Somewhat surprisingly, the Midwest saw a 30% growth in Hispanic business ownership. Many Hispanics have moved to the region in search of jobs, better economic opportunities and a lower cost of living than in places like New York, New Jersey or California.

Victor Alacazar, who owns Mexican restaurants El Jalapeño in Niles, Ohio, and El Jalapeño 2 in Youngstown, Ohio, started out by moving to the Midwest and working at restaurants started by his friends. Eventually, he opened his own eateries. Although he had a hard time securing credit a few years ago, he recently was able to obtain funding for renovations for his Youngstown eatery.

"It was hard to keep up with the bills and taxes and then be able to invest in remodeling. I couldn't get a loan. The bank couldn't help me, and I thought about closing. A friend in merchant services saw potential in my business and encouraged me to keep pursuing funding," said Alacazar, 34, who was born in Mexico, grew up in California, and is now looking to buy the building where his restaurant is located in Niles, Ohio.

"My credit wasn't good; I made mistakes when I was younger, and at the time I had too little history. I was scared to go back to the bank," added Alacazar, who borrowed $20,000 from a cash advance company arranged through Biz2Credit. "It was definitely worth it. Now, I've built some credit. I'm very happy."

The growth of Hispanic-owned businesses is demonstrated in Biz2Credit's annual study of 25,000 small businesses conducted in September. It included 2,000 Hispanic entrepreneurs who applied for business financing via the online platform over the past 12 months.

The study showed that the number of loan applications by Hispanic-owned firms on the platform grew by 68.7 percent in the past 12 months and that these companies had average annual revenues of $202,327, up from $68,540 the previous year.

Retail trade (15.3%), accommodations/food services (13.2%), and construction (10.2%) were the three most common industries for Hispanic entrepreneurs. As for geography, the top 5 states for Hispanic-owned small business loan applications were: California (23%), Texas (19.7%), New York (9%), Florida (8.1%), and Arizona (3.8%). These five states combined represented nearly two-thirds loan requests by Hispanic entrepreneurs on Biz2Credit's platform. Their companies were younger in terms of months in operation (28 months), vs. 30 months in operation on average for non-Hispanic-owned companies.

A major take-away from this study is that small businesses have been performing well in the past year and many of them are looking to expand their operations. However, areas for improvement exist. Hispanic entrepreneurs had a lower average credit score (595) than non-Hispanic business owners (608). The fact that average credit score for Hispanic entrepreneurs falls below 600 is still a cause for concern because that is a benchmark that many banks use before they even consider processing a loan request.

Here are three tips for Hispanic entrepreneurs and other business owners who want to improve their credit scores:

1.Open a business credit card

Applying is a quick, easy and a smart first step toward building a history of making prompt payments. Paying a business credit card on time and in full each month is the most effective way to demonstrate creditworthiness. Conversely, late payments will do more harm than good if you are trying to establish a credit history. An added bonus of having a company credit card: business owners can accumulate "rewards points" that can be redeemed for cash rebates or prizes.

2.Pay bills in full and in advance if possible

Some vendors will offer discounts for pre-payment. This tactic will help you lower debts and build a solid credit history simultaneously. You can actually improve cash flow by simply paying in advance. Doing this not only eliminates the negatives of having late payments, but also lowers the cost of goods sold. Improving cash flow will help increase the odds of securing financing when needed. Additionally, by establishing better relationships with your vendors, they will likely be willing to serve as credit references for your business. It's a win-win.

3.Operate a lean business

Containing costs is a basic strategy for establishing profitability and proving your business's creditworthiness. Manage staff hours carefully, keep inventory low, and look to cut costs by shopping around for better pricing on phone and internet service, and other suppliers to your firm.

Led by Administrator Maria Contreras-Sweet, the SBA offers a number of resources for Hispanic-owned companies. In May 2015, the agency launched a Spanish language version of its website, SBA.gov, and also provides training and advice for immigrant entrepreneurs. Hispanic business owners can take advantage of these offerings.

As the Hispanic population and entrepreneurship grow, they will become increasingly more important to the U.S. economy. It is vital that they are able to obtain the funding and assistance to help build their enterprises. Neither Donald Trump or Hillary Clinton are talking about, but they should if they want to grow the economy.

In 2007, I co-founded Biz2Credit, an online small business financing platform that uses technology to streamline the funding process. Previously, I worked for Deloitte Consulting and Goldman Sachs, and hold a Master's Degree in International Finance from Columbia University....